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Acb Leasing

This document discusses leasing and hire purchase agreements. It defines leasing as a contract that gives a lessee the right to use an asset for a period of time in exchange for lease rentals. There are two main types of leases: operating leases for short-term assets and financial leases for long-term assets. Hire purchase allows a hirer to take possession of an asset by paying installments over time, with ownership transferring after all payments are made. Key differences between leasing and hire purchase include tax treatment of depreciation and ownership of the asset.

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Prakash Gowda
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82 views

Acb Leasing

This document discusses leasing and hire purchase agreements. It defines leasing as a contract that gives a lessee the right to use an asset for a period of time in exchange for lease rentals. There are two main types of leases: operating leases for short-term assets and financial leases for long-term assets. Hire purchase allows a hirer to take possession of an asset by paying installments over time, with ownership transferring after all payments are made. Key differences between leasing and hire purchase include tax treatment of depreciation and ownership of the asset.

Uploaded by

Prakash Gowda
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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LEASING AND HIRE PURCHASE

LEASING
Lease is a contract under which a lessor, the owner of the assets, gives right to use the asset to a lessee, the user of the assets, for an agreed period of time for a consideration called the lease rentals

Types of Leases
Operating Lease Financing Lease Sale and Lease Back OTHER LEASE TERMINOLOGY a) Leveraged lease b) Cross-border lease c) Closed and open ended lease d) Direct lease e) Wet and dry lease

Operating Lease
Short-term, cancelable lease agreements are called operating lease. Tourist renting a car, lease contracts for computers, office equipments and hotel rooms. The Lessor is generally responsible for maintenance and insurance. Risk of obsolescence remains with the lessor.

Financial Lease
Long-term, non-cancelable lease contracts are known as financial lease. Examples are plant, machinery, land, building, ships and aircrafts. Amortize the cost of the asset over the terms of the leaseCapital or Full pay-out leases.

DIFFERENCE
FINANCIAL LEASE a) Non-cancelable b) Lessee provides for maintenance and taxes c) Risk of obsolescence is assumed by lessee d) Medium to long term e) Similar to loan Cost plus interest over a specified period of time f) Lessor fulfills financial function OPERATING LEASE a) Cancelable b) Lessor provides for maintenance & taxes c) Lessor assumes Risk of obsolescence d) Short term e) It is like a rental agreement. Restricted to regular rental payment. f) The lessor fulfills service function.

Sale and Lease Back


Sometimes, a user may sell an (existing) asset owned by him to the lessor (leasing company) and lease it back from him. Such sale and lease back arrangements may provide substantial tax benefits.

Advantages of Leasing
Convenience and Flexibility. Shifting of Risk of Obsolescence. Maintenance and Specialized Services.

Difference
Hire Purchase Financing Hirer is entitled to claim Depreciation Tax Shield. Hirer can charge only interest Portion. Lease Financing Lessee is not entitled to claim depreciation tax shield. Lessee can charge the entire lease payments as expense for tax computation. Lessee does not become the owner of the asset. Therefore he has no claim over the asset salvage value.

Once the hirer has paid all installments, he becomes the owner of the asset and can claim its salvage value.

Hire Purchase
The owner of the asset (the Hirer or the manufacturer) gives the possession of the asset to the Hirer with an understanding that the Hirer will pay agreed installments over a specified period of time. The ownership of the asset will transfer to the hirer on the payment of all installments. The Hirer will have the option of terminating the agreement any time before the transfer of ownership of assets.

Hire Purchase
Mode of financing Installments Down payment

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